“Benchmark helped our pension plan develop an Investment Policy Statement to establish guidelines for the Plan’s investment portfolio in the areas that most influence the investment returns and Funded Status of the Plan.”

Situation & Key Challenges

The pension plan is looking to develop a statement which establishes accountability standards that will be used to monitor the progress of the plan’s investment program and to evaluate the contributions of the manager hired on behalf of the Plan and its beneficiaries.

Client's Objectives

The pension plan sponsors need to fulfill their fiduciary responsibilities to establish a mission statement, investment philosophy, goals and objectives for the plan. Additionally, they need to establish a clear statement on the duties and responsibilities of the Board of Trustees of the pension plan, the staff of the plan sponsor, and the manager hired to execute the management of the investment portfolio of the plan. Pension fund fiduciaries may consider the following items for inclusion in the section of the investment policy that identifies the mission and purpose of the plan and its investment program (or similar section).

Benchmark's Solution

Mission Statement
  • The fundamental mission of the Retirement System (e.g., to provide retirement and other benefits to plan participants); and
  • Exclusive purpose – investment solely in the interests of plan participants and beneficiaries, for the exclusive purpose of providing retirement and other benefits to plan participants and beneficiaries.
Investment Philosophy

Asset allocation is the key determinant of return and, therefore, commitments to asset allocation targets will be maintained through a disciplined rebalancing program.

Diversification, both by and within asset classes, is a primary risk control element.

Passive and active management—active and passive fund portfolios are suitable investment strategies—with passive management especially suitable in highly efficient markets.

Market timing is precluded as an acceptable investment strategy.

Liabilities—the investment program is ultimately for the purpose of meeting the pension system’s obligations for benefit payments.

Cash flow obligations are important for the investment program to be cognizant.

Goals & Objectives

For total plan assets, the goals are as follows:

  • To preserve the actuarial soundness of the plan in order to meet benefit obligations;
  • To achieve a long-term (one to two market cycles) return of at least the actuarial earnings rate; and
  • To obtain a long-term (one to two market cycles) rate of return, net of fees, in excess of its policy benchmark by _____ basis points. The policy benchmark (see below) is a hypothetical portfolio of index funds weighted by asset allocation targets.Pension fund fiduciaries may consider the following items for inclusion in a section of the investment policy that defines the roles and responsibilities of internal staff and external professionals (or similar section).
Board of Trustees Duties
  • General duties – The Board has the responsibility of establishing and maintaining broad policies and objectives for all aspects of the System’s operation.
  • Investment-related duties – The Board will review and approve the development or revision of the following documents: (a) The Investment Policy and Appendices; (b) The Strategic Asset Allocation; (c) Performance Benchmarks for the Strategic Asset Allocation; and (d) All other issues of investment policy not specifically enumerated here.
  • Standard of care – The standard of prudence applied to the Board shall be the prudent standard and shall be applied in the context of managing an overall portfolio.
Internal Staff Duties
  • General duties – A Chief Executive Officer (CEO) is appointed by, and serves at the pleasure of the Board. The CEO is responsible for planning, organizing, and administering the operations of the System under broad policy guidance and direction from the Board.
  • Investment-related duties – The CEO, with the assistance of ________ (staff and/or investment consultants), monitors the performance of the investment portfolio; ensures that funds are invested in accordance with Board policies; studies, recommends, and implements policy and operational procedures that will enhance the investment program of the System; and ensures that proper internal controls are developed to safeguard the assets of the System.
  • Standard of care – The standard of prudence applied to the Board shall be the prudent ______ standard and shall be applied in the context of managing an overall portfolio.
External Investment Manager Duties
  • Duties – The Investment Manager’s duty is to work with the Board and Staff to manage the investment process. This can include: (a) Review of asset allocations and performance in conjunction with the Staff, and making recommendations to the Board as appropriate; (b) Assistance with external money manager selection; he or she will promptly inform the Board and discuss the impact of material changes taking place within any current manager’s investment process; and (c) Meetings with the Board to provide an independent perspective on the Fund’s goals, structure, performance, and managers.
  • Standard of care – The standard of prudence applied to the external investment consultant shall be the prudent ______ standard and shall be applied in the context of managing an overall portfolio.
  • Acknowledgement of fiduciary obligations – The external investment consultant will acknowledge in writing that he/she is a fiduciary of the pension plan.
  • Communication – The investment consultant will provide the System with quarterly reporting and commentary on total portfolio performance, performance by asset class, and individual manager performance.
  • Investments– Money managers will select, buy, sell, and loan specific securities pursuant to this investment policy and guidelines. Discretion is delegated to the managers to carry out investment actions as directed by the System.

Results & Impact


  • Established a well-reasoned Strategic Asset Allocation for the plan based on maximizing the probability of meeting the plan’s future obligations to its employees;
  • Created a Rebalancing policy that equally balanced risk control and the costs of rebalancing the investment portfolio;
  • Established a clear statement on the plan’s Prohibited investments, as well as its Permissible investments;
  • Created guidelines for investment Diversification and credit quality standards for the plan’s fixed income investments; and
  • Developed clear Reporting and Performance Monitoring guidelines.

Working closely with this client, Benchmark was able to create an Investment Policy Statement that not only established a clear indication of the plan sponsor’s objectives, but also clearly defined roles and responsibilities and expected results for the Trustees, staff and external investment managers. The Trustee’s now feel much more comfortable that they are meeting their fiduciary and legal responsibilities to the pension plan and their compliance staff and errors & omissions insurance provider agree.